Early Retirement : The Golden Handshake--or Shove?

American Airlines, like many companies scrambling to stay competitive, sought to trim its payroll. So last October--for the 11th time in five years--it offered employees between 50 and 55 years old a special invitation to quit.

The biggest attraction: special $400 monthly pensions until age 55, when retirement benefits normally became available. About 700 workers signed up--so many that the airline had to ask some to stick around an extra few months just to make sure its airplanes were adequately cared for.

As American Airlines demonstrated, corporate America has found a stunningly effective method for cutting payrolls.

Range of Industries

Known to some as the "golden handshake," to others as the "golden shove," cash inducements for older workers to give up their jobs are being embraced across a broad range of U.S. industries--from oil to banking, airlines to chemicals--as companies contend with wrenching and fundamental economic changes.

Within the last year, such employers as DuPont, BankAmerica, Firestone Tire & Rubber, Owens-Illinois and Phillips Petroleum have turned to such retirement programs to squeeze the excess out of their work forces. Atlantic Richfield in Los Angeles recently launched an early retirement drive as part of a restructuring program designed to cope with pervasive weakness in the oil industry.

Executives at Arco and other companies tout their plans as humane, generous alternatives to layoffs, with the added benefit of enhancing opportunities for younger employees. Indeed, for people who are about to retire anyway, or who seek new careers--such as an official who left Aerospace Corp. a few years ago to run an avocado ranch--such offers are frequently too good to refuse.

Self-Worth Questioned

Other observers say, however, that the growing reliance on early retirement programs is raising critical issues for older workers. Employees in their 40s or 50s--people who thought that their careers were secure--find themselves questioning their self-worth, their career futures, their proper place in the working world.

Some critics contend that the programs end up forcing out employees who are too old to find a new job easily and too young to stop working. Many employees, they say, really do not want to retire but cannot risk sticking around to see if they are laid off.

At Arco, for example, officials are waiting to see how many employees take voluntary retirement before they announce layoffs. Although those let go would qualify for a farewell severance payment, benefits generally would fall far short of the early retirement offer.

An Arco secretary in her 50s described the tension: "You go to work one day and there's this memo which says we're restructuring. Even though they tell you the plan is entirely optional, it's foolhardy not to take it. If you don't take it and in July they say, 'You're out,' you're out without any of the extra benefits. The stresses and strains of this kind of situation are enormous."

The secretary, who will need a new job to supplement her $300 monthly Arco pension, added: "The happy people are the ones who can walk off with a lot of money. They're the high-level employees with many years at the company."

Employers push early retirement for various reasons: to cut costs caused by merger and takeover concerns or simply in response to changing conditions, such as deregulation of the airline industry or a drop in the price of oil. Christine Seltz, a partner with the Hewitt Associates consulting firm, said a precise count on the prevalence of such programs is not available and estimated that 20% of companies may be offering or contemplating them, about the same level as during the recession in the early 1980s.

The programs clearly have been effective. As a tool for cutting staff, however, they can resemble the meat cleaver more than the surgical knife, especially if benefits are generous. Between February and May, 11,200 employees marched out of DuPont, double the number predicted, many with monthly pensions inflated by hundreds of dollars.

Conflicting Views

DuPont officials cite the exodus as evidence of the program's success. "We would hope that this would greatly diminish the need for forced layoffs," said H. Gordon Smyth, a company vice president.

Others have a different view. "Leaner doesn't necessarily mean better," said Kenneth Henley, an attorney representing the International Brotherhood of DuPont Workers. "The program would have been successful if 6,000 workers left. But over 11,000 left. They lost the cream of the crop."

Noted James (Kimo) Bogardus, a personnel official with American, whose special retirement plans over the years have led 2,500 older employees to leave the airline: "You never know who's going to accept the program. If a large number of well-trained people leave, you might wipe out the capability of a department."